Seoul High Court 2009Nu1466 (2010.04.02)

An exporter of the gold bullion transaction via a bombing company shall determine whether to refund the gold bullion transaction in accordance with the principle of trust and good faith (Reversal and return).

If a malicious business operator’s fraudulent transaction for the purpose of evading the output tax amount in the course of a series of gold bullion transactions exists, and the exporter knew of, or was unaware of, the fact that the deduction and refund of input tax amounts would lead to the reduction of other tax revenues by gross negligence, the exporter’s assertion of input tax deduction and refund cannot be permitted in violation of the good faith principle (def

2010du8201 Disposition of revocation of revocation of refund of value-added tax

○○ Co., Ltd.

○ Head of tax office

Seoul High Court Decision 2009Nu1466 Decided April 2, 2010

July 14, 2011

The part of the judgment of the court below on the imposition of value-added tax for the first period of 2004, the second period of 2004, the refusal to refund value-added tax for the second period of 2004, and the imposition of penalty tax for failure to report on the second period of 2004, respectively, shall be reversed, and the case shall be remanded to the Seoul High Court.

The remaining appeals are dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the fact that the instant tax invoice is a false tax invoice

After comprehensively taking account of the adopted evidence, the lower court determined that the instant tax invoice does not constitute a false tax invoice.

The ground of appeal on this part is that the above judgment of the court below is erroneous, but it is merely an error in the selection of evidence or fact-finding which belongs to the exclusive jurisdiction of the court below and thus cannot be a legitimate ground of appeal.

2. On the ground that unfair input tax deduction and refund claim violate the principle of good faith

A. Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “the Framework Act on National Taxes”) declares that the principle of good faith should be a basic guiding ideology in the field of tax law by stipulating that “A taxpayer shall perform his/her duty in good faith. This shall also apply in cases where a tax official performs his/her duty.” This principle of good faith, which enables the concrete feasibility of the operation of the law through the function of embodying or supplementing the existing law and supplementing it, is somewhat limited compared to that of the principle of no taxation without law in the field of tax law, and its scope of application is somewhat limited compared to that of the principle of no taxation without law. However, if a tax law is applied to an individual case, it would result in an unreasonable consequence, which would result in a sound performance of value-added tax in light of the universal justice and ethics, thereby excluding the application of the principle of good faith under Article 13(1) of the Framework Act on National Taxes (the main text).

B. Article 15 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010) provides that when an entrepreneur supplies goods or services, the value-added tax on the value of the supply thereof shall be collected from the person who receives the supply thereof. Article 17(1) provides that the value-added tax payable by an entrepreneur shall be the amount obtained by deducting the input tax amount from the output tax amount, and that the input tax amount exceeding the output tax amount shall be refundable. This is based on the principle that the entrepreneur collects the output tax from the entrepreneur who receives the supply at each transaction stage prior to reaching the final consumer and pays the tax amount to the State, and the entrepreneur who collects the tax amount shall, through the process of receiving the deduction and refund as the input tax amount from the State, make it impossible to properly pay the input tax amount to the final consumer (see, e.g., Supreme Court Decision 9Da3984, Nov. 12, 199).

Therefore, in a series of continuous transactions, where a malicious entrepreneur has attempted to evade value-added tax from the beginning to the end, and does not pay the value-added tax collected by him by attempting to make an abnormal transaction that only causes losses if he/she does not evade value-added tax (hereinafter referred to as "illegal transaction"), as in the next transaction stage, if an exporter is entitled to deduct and refund the input tax without the burden of the output tax amount as in the zero-rate tax rate as in the next transaction stage, the country has no choice but to make a refund with other tax revenues. This result exceeds the passive gap in tax revenues and constitutes the leakage of the National Treasury. Accordingly, the burden exceeds the damage of the value-added tax system itself, thereby causing serious harm to the overall tax system.

Of course, even if there are the above reasons, if an exporter is in a situation where the existence of an illegal transaction is not known at all, he/she may not, in principle, deny that the exporter is entitled to deduct or refund an input tax amount as prescribed by the Value-Added Tax Act.However, if the exporter was aware that there was an illegal transaction at the pre-stage stage, and he/she had engaged in a transaction with an opportunity to promote his/her own interest without vagasing it, and his/her transaction profit is attributable to the aforementioned illegal transaction, and his/her participation in the transaction is ultimately a critical factor that makes it possible to make an illegal transaction ultimately by taking advantage of the input tax deduction and refund system which is a premise, it shall be deemed an act of pursuing unjust profits by abusing the input tax deduction and refund system which is a premise, and thus, it would be an act of guaranteeing the exporter's deduction and refund of the input tax amount with another tax revenue as a revenue from an illegal transaction to the National Treasury, and it may not prevent any serious harm to the overall tax system as seen above.

Therefore, it is difficult for an exporter to seek the deduction and refund of an input tax in such a case, in light of the universal sense of justice and ethics, and thus, it cannot be permitted as it goes against the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes.This legal principle is equally applicable to a case where an exporter was unaware of such illegal transaction due to gross negligence in light of the perspective of fairness, the gravity of the result, and the universal sense of justice, in other words, the relationship with a malicious business operator where the exporter was unaware of such illegal transaction due to gross negligence, and if the exporter was aware of such illegal transaction, it is reasonable to deem that the same applies to a case where the exporter was unaware of such illegal transaction due to gross negligence, and even if he could have sufficiently known of such fact, he did not clearly violate the duty of due care to the extent close to

In addition, in such cases, since an exporter who has a mutual relationship with a malicious business entity is entitled to deduct and refund the input tax amount from the State, and thus, the exporter denies the deduction and refund of the input tax amount, it cannot be deemed that the exporter transfers his/her liability for the evasion of value-added tax to the exporter without reasonable grounds (see Supreme Court en banc Decision 2009Du13474, Jan. 20, 201).

C. Examining in light of the aforementioned legal principles, if the Plaintiff, an exporter, has a malicious entrepreneur who makes an illegal transaction for the purpose of evading the output tax amount in the course of a series of transactions prior to the transaction, and accordingly, seeks the deduction and refund of the input tax amount even though he knew of or was unable to know of the fact that the Plaintiff’s deduction and refund of the input tax amount would result in a decrease in other tax revenues, it is not only the Plaintiff, who was taking advantage of the malicious entrepreneur’s illegal transaction, takes part of the input tax amount evaded by abusing the input tax deduction and refund system, thereby taking advantage of the malicious entrepreneur’s input tax deduction and refund system, but also harming the foundation of the VAT system and the overall tax justice under Article 15 of the Framework Act on National Taxes.

D. Therefore, the court below should have sufficiently examined whether the plaintiff knew or was unaware of the above circumstances in the transaction of gold bullion in this case by gross negligence and judged whether the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount violates the principle of good faith. However, the court below should allow the plaintiff's assertion on deduction and refund of the plaintiff's input tax amount solely on the ground that the tax invoice in this case does not constitute a false tax invoice, and thus, the imposition disposition of value-added tax for the first period of 2004 of this case (including the penalty tax for failure to report and the penalty tax for failure to pay, but excluding the penalty tax for failure to submit a tax invoice table) and the imposition disposition of additional tax for failure to report for the second period of 204 for the second period of 204 and the imposition of value-added tax for failure to report for the second period of 204 was unlawful. The court below erred by misapprehending the legal principles on the principle of good faith under Article 15 of the Framework Act on National Taxes

3. As to the imposition disposition of corporate tax

The defendant also stated this part of the petition of appeal as subject to appeal, but there is no legitimate ground of appeal in the petition of appeal or appellate brief.

4. Conclusion

Therefore, the part of the judgment of the court below regarding the imposition disposition of value-added tax for the first period of 2004 except for the submission of the aggregate tax invoices to the court below, the return refusal disposition of value-added tax for the second period of 2004, and the imposition disposition of penalty tax for failure to report on the second period of 2004 is reversed, and this part of the case is remanded to the court below for a new trial and determination. The remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices